Supreme Court Holds Arbitration of Class Claims Must Be Specifically Authorized

By: Joe Bryan

April 25, 2019

On Wednesday, April 24, 2019, the Supreme Court issued another decision supporting the use of individual arbitration agreements, and limiting employee and consumer access to class and collective claims.

The Supreme Court previously held that class claims cannot be pursued in arbitration if an agreement is silent on the issue of class arbitration. But in this case, the Ninth Circuit Court of Appeals found that broad language in an employment agreement was ambiguous, construed the agreement against the employer, and held that the employee could pursue class claims in arbitration. The Supreme Court reversed, and ruled that arbitration of class claims was prohibited unless expressly authorized by the arbitration agreement. Chief Justice Roberts, writing on behalf of the Court’s majority, explained that, because the agreement did not explicitly authorize class claims, only the “traditional individualized arbitration” envisioned by the Federal Arbitration Act was permissible.

The case, Lamps Plus, Inc. v. Varela, involved an employee’s putative class action claims under federal and California state law after a fraudulent income tax return was filed in his name following a data breach of the lighting retailer’s employee tax records. The arbitration agreement signed by Varela included sweeping language such as, “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment.” The employee argued that broad language and similar clauses in the agreement rendered arbitration of class claims permissible. That is, the agreement arguably was not silent as to class arbitration – it was merely ambiguous. And, because the agreement was prepared by the employer, and entering into it was a condition of employment, the agreement was a contract of adhesion. Therefore, according to the employee, the ambiguous agreement should be construed in his favor, and his class claims should be allowed to proceed. The federal District Court, the Ninth Circuit Court of Appeals and four U.S. Supreme Court Justices agreed. But the Supreme Court majority, led by the Chief Justice, disagreed.

This decision is an important one for employers, retailers, and others subject to the FAA. The ability to limit class claims is obviously attractive. However, employers should consult counsel and carefully consider the particular facts and circumstances applicable to them before deciding to enter into arbitration agreements with their employees.

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